Published by the Centre for Independent Studies (Sydney), 14 July 2011 (PDF)

Executive Summary

Debate about population routinely dominates politics in Australia, including the (in)adequacy of Australia’s infrastructure and the potential impact on our environment.

Much of the debate revolves around national statistics and aggregates. What will Australia’s population be in 2050? What will Australia’s ‘carbon footprint’ be in 2030? What is the appropriate annual level of immigration? Although important, these questions often obscure the impact of population growth on local communities, and the impediments and incentives they face in accommodating more people.

Local councils are at the coalface of population growth. Their ability to adequately provide basic infrastructure for more people will affect how Australians perceive the costs and benefits of population growth.

Population growth affects a council’s budget. It usually results in extra revenue from charges and rates, but it also requires extra investment in infrastructure and increased spending on services. If we want to find out how local government is predisposed to dealing with population increases, we need to understand how extra revenue and extra costs play out in practice.

To assess the effects of population growth on local government finances and whether local officials have adequate revenue sources to deal with the challenges of the inevitable population growth,1 we conducted an online survey of all 558 local governments in Australia (mayors and chief executives). The survey comprised 18 questions. Four key findings emerged from the 120 valid responses (or 21.5% of the entire sample):

Local governments have been raising property rates to meet the costs of population growth. These rises are more likely in more populous and rapidly growing communities.

Almost one-third of respondents, particularly larger councils, said population growth was damaging their bottom line, and that they were concerned about upgrading infrastructure.

About 80% of respondents use developer levies to help pay for the costs of population growth. Levies are used more widely by larger councils, and particularly in NSW and Queensland.

Only a fraction of respondents thought their existing revenue mechanisms were wholly adequate. Indeed, more than half of the respondents in NSW and Queensland said the current setup was not satisfactory. Overwhelmingly, local councils think better access to ongoing revenue streams would alleviate some of the pressures of accommodating extra population.

This monograph also considers the benefits and problems of changing the way local government raises funds. Allocating fractions of GST and income tax to local councils may be difficult in practice if the revenue allocated is also generated locally. It may be easier to simply re-weight the existing grants process to make it more timely and better target areas with growing populations.

However, relying on developer levies to pay for population growth is unquestionably more problematic, especially for smaller councils that don’t have the resources to design and enforce them. Moreover, such levies increase the cost of housing for new residents (as developers pass on the costs) and force long-term infrastructure costs onto the current generation. In such instances, councils should make more use of debt markets.

No council should be punished for planning for development. In Australia, however, they are punished regularly for doing so.